Stocks Fade On Friday

Stocks headed out of the red on Friday morning and it appeared to be shaping-up as a decent day, despite the slight decline in the preliminary reading of the Thompson Reuters/University of Michigan Consumer Sentiment Index for August.

At noon, the yield on the ten-year Treasury note began to climb, reaching a peak just before 2:00 when the yield reached 2.855 percent. The major stock indices immediately began to slide, although they recovered somewhat during the final 90 minutes of the session as the yield retreated to 2.832 percent by 4:00. Nevertheless, the S&P 500 Index finished the week below its 50-day moving average and this should have investors in a risk-averse mood at Monday’s opening bell.

The rising Treasury yield was obviously due to concern about the dreaded taper of the Federal Reserve’s bond-buying program, which is expected to begin after the September 17-18 meeting of the FOMC.

The Chicago Board Options Exchange Volatility Index (VIX), also known as the “fear index”, has assumed a newfound role as the “Taperometer”, since it has been measuring taper fears. Despite Friday’s taper anxiety, the VIX finished the session with a 2.44 percent decline, as it rose and fell with the ten-year Treasury yield (although the VIX was 6 percent into the red at noon, before beginning its climb).

The Dow Jones Industrial Average (DIA) lost 30 points to finish Friday’s trading session at 15,081 for a 0.20 percent drop. The S&P 500 (SPY) declined 0.33 percent to close at 1,655.

The Nasdaq 100 (NASDAQ:QQQ) dipped 0.08 percent to finish at 3,073. The Russell 2000 (IWM) fell 0.32 percent to end the day at 1,024.

In other major markets, oil (USO) advanced 0.42 percent to close at $38.40.

On London’s ICE Futures Europe Exchange, October futures for Brent crude oil advanced by $1.04 (0.95 percent) to $110.64/bbl. (BNO).

December gold futures advanced by $13.40 (0.98 percent) to $1,374.30 per ounce (GLD).

Transports were in the express lane during Friday’s session, with the Dow Jones Transportation Average (IYT) surging 0.72 percent.

Japanese stocks fell further into the red on Friday as the exchange rate for the yen rose, hurting exporters. The yen strengthened to 97.05 per dollar during Friday’s trading session in Tokyo. A stronger yen causes Japanese exports to be less competitively priced in foreign markets (FXY). The Nikkei 225 Stock Average dropped 0.75 percent to 13,650 (EWJ).

In China, stocks fell on Friday after more than half of the companies which have reported quarterly earnings so far have fallen short of estimates. The Shanghai Composite Index dropped 0.64 percent to close at 2,068 (FXI). Hong Kong’s Hang Seng Index dipped 0.10 percent to end the day at 22,517 (EWH).

European stocks were off to a slow start on Friday as concerns about the potential consequences from the violence in Egypt took continued to overshadow the final days of the quarter’s corporate earnings season (VGK). Trading volume was thin, as most Europeans are “on holiday” during August.

A number of positive earnings reports helped pull the major European stock indices out of the red. Asset manager GAM Holding AG had a huge quarter which brought its share price soaring 1.44 percent. In London, Randgold Resources LTD saw its share price skyrocket 5.32 percent as gold prices have rebounded.

The Euro STOXX 50 Index finished Friday’s session with a 0.65 percent surge to 2,854 –climbing further above its 50-day moving average of 2,703. Its Relative Strength Index is 69.95 (FEZ).

Technical indicators revealed that the S&P 500 dropped below its 50-day moving average of 1,657 after finishing Friday’s session with a 0.33 percent decline to 1,655. At this point, bears are watching the formation of a head-and-shoulders pattern on the S&P chart. (There already is a pinhead-and-shoulders pattern running from the period beginning on July 10 through the present.) Its Relative Strength Index fell from 40.82 to 38.74. The MACD is below the signal line and both are on a downward trajectory, suggesting a continued decline.

For Friday, all sectors were in negative territory, except for the industrial sector, which advanced 0.13 percent. The utilities sector took the hardest hit, sinking 1.16 percent.

Consumer Discretionary (XLY): -0.36%

Technology: (XLK): -0.11%

Industrials (XLI): +0.13%

Materials: (XLB): -0.78%

Energy (XLE): -0.40%

Financials: (XLF): -0.17%

Utilities (XLU): -1.16%

Health Care: (XLV): -0.46%

Consumer Staples (XLP): -0.59%

Bottom line: After gaining some ground on Friday morning, the major stock indices retreated as the ten-year Treasury yield rose, causing the S&P 500 Index to finish the session below its 50-day moving average.

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